Who is doing better with natural resources - Essay Example

Who is doing better with natural resources? Relevant theory Gross domestic product is one of the important macroeconomic indicators. It defines totalvalue of commodities that an economy produces within a period, normally a year. An economy with higher value of gross domestic product suggests better economic conditions for consumers and investors because of possible economic potentials to be exploited and incomes distributed to different stakeholders. The gross domestic product is however just an indicator and its measurement faces many challenges.

It however bears theoretical relationships with other variables that can be used to predict its value and to infer meanings that the growth domestic product could generate. Keynes theory explains that productivity is a function of demand for commodities in an economy. Examples of sources of such demand are government consumption, domestic and foreign demand, and expenditure. Exports measure foreign demand while investments indicate potentials for domestic demand. The Keynes theory forms the basis of economic theory of GDP determination that develops a model for the relationship between GDP and its components.

The theory assumes direct proportionality between gross domestic product and the components and therefore offers a basis for predicting gross domestic product of an economy. This paper uses data on gross domestic product and its components to develop a model for the relationship between GDP and its constituents for Mexico. The models are then compared. Key variables Gross domestic product, indicated by GDP per capita, is the dependent variable for the study. The variable indicates the level of productivity of an economy and communicates existence of investments opportunity.

Growth in gross domestic product indicate existence of investment opportunities that parties continue to exploit while a decline in GDP indicates depletion of resources for production. Gross domestic product also indicates potential existence of market for inputs into production. Export and foreign direct investments are the study’s dependent variables. Exports indicates surplus production that an economy sells to its external market and is therefore an indicator of total output value and hence of gross domestic product.

Foreign direct investment is part of investments in an economy and therefore indicates investment value in an economy. The variables therefore indicate consumptions and investment in economies and therefore have positive relationships with the gross domestic product. Estimating equations The general equation for the relationship between gross domestic product, exports, and foreign direct investment is shown bellow. Yi=α+β1X1+β2X2+e Where Yi= Gross domestic product for country Α= a constant term βi= regression coefficients for the independent variables X1= Value of exports X2= value of foreign direct investments E= noise The following data set shows the respective values of the variables for Mexico.

year Gross Domestic Product(per capita) Export(percentage of GDP) Foreign Direct investment 2005 12641 27.2 6474 2006 13751 28.1 5758 2007 14949 28 8256 2008 15267 28.1 1157 2009 14941 27.7 9604 2010 15822 30.4 15050 2011 17446 31.7 12636 2012 18288 33 23404 From the data, the country has a mean gross domestic product per capita of $ 15388.13, mean percentage export (by GDP) of 29.275 percent, and mean foreign direct investment inflow of $ 10292.38 billion. Regression analysis of the data generates the following model for the relationship between GDP, export, and foreign direct investments for Mexico. Y=-10630.2+ 903.99 X1-0.0433 X2+ e This means that for every unit percentage increase of percentage export, the country’s GDP per capita increases by $ 903.99. Increase in foreign direct investment in the country by a billion dollars however reduces GDP per capita by $0.0433. Exports are however, the only significant of the variables and this means that an increase in export values indicates an increase in GDP and is consistent with the expectations.